Exhibit 2.1 -------------------------------------------------------------------------------AGREEMENT AND PLAN OF MERGER by and among AMREP CORPORATION KABLE MEDIA SERVICES, INC. GLEN GARRY ACQUISITION, INC. PALM COAST DATA HOLDCO, INC. PALM COAST DATA, LLC and THE SELLERS SET FORTH ON THE SIGNATURE PAGE HERETO Dated as of November 7, 2006 -------------------------------------------------------------------------------
TABLE OF CONTENTS ARTICLE I THE MERGER SECTION 1.1 SECTION 1.2 SECTION 1.3 The Merger....................................................2 Closing Date and Effective Time...............................2 Closing.......................................................3 ARTICLE II MERGER CONSIDERATION SECTION SECTION SECTION SECTION 2.1 2.2 2.3 2.4 Conversion of Shares..........................................6 Stock Appreciation Rights; Options; Phantom Debt..............7 Pre-Closing Adjustment........................................9 Post-Closing Adjustment......................................10 ARTICLE III REPRESENTATIONS AND WARRANTIES OF HOLDINGS SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 Organization and Authority...................................12 Capitalization...............................................13 Consents and Approvals; No Violations........................14 Financial Statements.........................................15 Absence of Material Adverse Changes, etc.....................15 No Undisclosed Liabilities...................................17 Taxes........................................................17 Employee Benefit Plans.......................................19 Environmental Matters........................................21 Legal Proceedings, etc.......................................22 Compliance with Applicable Law...............................22
SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION
3.12 3.13 3.14 3.15 3.16 3.17 3.18 3.19 3.20 3.21 3.22 3.23 3.24 3.25 3.26 3.27 3.28
Certain Contracts and Arrangements...........................23 Real Property................................................25 Employees; Labor Matters.....................................27 Insurance....................................................27 Intellectual Property........................................28 Customers....................................................29 Certain Fees.................................................29 Title to Assets..............................................30 Receivables..................................................30 Suppliers....................................................30 Geographic Limitations.......................................30 Records......................................................30 Bank Accounts................................................31 Indebtedness.................................................31 Absence of Certain Business Practices........................31 Disclosure...................................................32 Disclaimer of Warranties by Holdings.........................32 ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SELLERS
SECTION SECTION SECTION SECTION SECTION SECTION
4.1 4.2 4.3 4.4 4.5 4.6
Organization and Authority...................................32 Holdings Share Ownership.....................................33 Consents and Approvals; No Violations........................33 Certain Fees.................................................33 Legal Proceedings, etc.......................................33 Disclaimer of Warranties.....................................34
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 Corporate Organization and Authority.........................34 Consents and Approvals; No Violations........................35 Legal Proceedings, etc.......................................36 Certain Fees.................................................37 Acquisition of Holdings Shares for Investment................37 Financing....................................................37 Investigation by Parent; Holdings' Liability.................37 Disclaimer of Warranties.....................................38 ARTICLE VI COVENANTS SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 6.11 6.12 6.13 Conduct of the Business......................................38 Access to Information and Real Property; Confidentiality.....40 Delivery of Monthly Financial Statements.....................40 Reasonable Best Efforts......................................41 Governmental Authorizations..................................41 Public Announcements.........................................42 Employee Matters.............................................42 Tax Matters..................................................43 Audit; Cooperation...........................................44 Return of Insurance Receivables..............................44 Update.......................................................45 Further Assurances...........................................45 Restrictive Covenants........................................45
ARTICLE VII CONDITIONS TO PARENT'S OBLIGATION TO CLOSE SECTION SECTION SECTION SECTION SECTION SECTION SECTION 7.1 7.2 7.3 7.4 7.5 7.6 7.7 Representations and Warranties; Covenants....................48 Absence of Legal Proceedings.................................49 Consents and Terminations....................................49 Additional Conditions........................................49 HSR Act......................................................50 Deliverables.................................................50 Restructuring Transactions...................................50 - ii ARTICLE VIII CONDITIONS TO HOLDINGS' OBLIGATIONS TO CLOSE SECTION SECTION SECTION SECTION 8.1 8.2 8.3 8.4 Representations and Warranties; Covenants....................50 Absence of Legal Proceedings.................................50 HSR Act......................................................50 Deliverables.................................................51 ARTICLE IX TERMINATION SECTION 9.1 SECTION 9.2 Termination..................................................51 Procedure and Effect of Termination..........................51 ARTICLE X INDEMNIFICATION SECTION SECTION SECTION SECTION SECTION SECTION 10.1 10.2 10.3 10.4 10.5 10.6 Survival.....................................................52 Indemnification Provisions for Benefit of Parent.............53 Indemnification Provisions for Benefit of Sellers............55 Special Indemnification Provisions for Benefit of Parent.....55 Exclusive Remedy.............................................55 Manner of Payment............................................56 ARTICLE XI MISCELLANEOUS SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION 11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8 11.9 11.10 11.11 11.12 11.13 11.14 11.15 11.16 Certain Definitions..........................................56 Notices......................................................56 Interpretation...............................................57 Amendments, Modification and Waiver..........................57 Expenses.....................................................58 Release......................................................58 Successors and Assigns; Binding Effect.......................58 Governing Law................................................59 Jurisdiction; Forum..........................................59 Severability.................................................59 Third Party Beneficiaries....................................59 Schedules; Materiality.......................................59 Entire Agreement.............................................60 Counterparts; Facsimile Delivery.............................60 Specific Performance.........................................60 Sellers' Representative......................................61 ARTICLE XII GUARANTEE SECTION 12.1 Publico Guarantee............................................62
- iii INDEX OF DEFINED TERMS
Action......................................................................22 Adverse Consequences........................................................55 Affected Employee...........................................................43 Affiliates..................................................................15 Aggregate Liquidation Preference.............................................7 Aggregate Option Amount......................................................8 Agreement....................................................................1 Annualized Adjusted EBITDA...................................................9 Annualized Adjusted Net Revenues............................................10 Applicable Option Amount.....................................................8 Applicable SAR Amount........................................................8 Audit.......................................................................45 Certificate of Merger........................................................2 Class A Common Stock.........................................................1 Class B Common Stock.........................................................1 Closing......................................................................3 Closing Date.................................................................2 Closing Notice..............................................................51 Closing Statement...........................................................10 Closing Working Capital.....................................................11 Code........................................................................20 Company......................................................................1 Company Common Interests....................................................14 Company Intellectual Property...............................................29 Confidential Information....................................................48 Confidentiality Agreement...................................................41 Current Assets..............................................................10 Current Liabilities.........................................................11 Debt Amount..................................................................4 DGCL.........................................................................2 Disclosure Schedule.........................................................12 Effective Time...............................................................2 Employee Benefit Plans......................................................19 Encumbrances................................................................15 Environmental Claim.........................................................21 Environmental Laws..........................................................21 ERISA.......................................................................19 ERISA Affiliate.............................................................19 Escrow Agent.................................................................5 Escrow Agreement.............................................................5 Escrow Amount................................................................5 Estimated Working Capital....................................................9 Extension Notice............................................................53 Final Statement.............................................................10 - iv -
Financial Statements........................................................15 Fully Diluted Basis.........................................................12 GAAP.........................................................................9 Governmental Authority......................................................15 Hazardous Materials.........................................................21 Holdings.....................................................................1 Holdings Breach.............................................................55 Holdings Shares..............................................................1 HSR Act.....................................................................42 Indemnification Basket......................................................55 Indemnification Cap.........................................................55 Independent Accounting Firm.................................................11 Insurance Proceeds..........................................................46 Intellectual Property.......................................................28 June Balance Sheet..........................................................15 June Financial Statements...................................................15 Knowledge of Holdings.......................................................58 Law.........................................................................22 Leased Real Property........................................................26 Leases......................................................................26 Liability...................................................................16 MAE Change Date.............................................................51 Material Adverse Effect.....................................................58 Material Contracts..........................................................23 Material Customers..........................................................29 Material Maintenance Contracts..............................................23 Material Supplier...........................................................31 Merger.......................................................................1 Merger Consideration.........................................................9 Merger Consideration Decrease...............................................12 Merger Consideration Increase...............................................11 Merger Sub...................................................................1 Operating Leases............................................................10 Option Agreements............................................................8 Options......................................................................1 Owned Real Property.........................................................26 Parent.......................................................................1 Parent Breach...............................................................56 Per Escrow Amount............................................................7 Per Share Amount.............................................................7 Permits.....................................................................22 Permitted Encumbrances......................................................25 Person......................................................................13 Phantom Debt.................................................................1 Plan.........................................................................1 Post-Closing Tax Return.....................................................44 Predecessor.................................................................15 - v Preferred Holder.............................................................4 Preferred Shares.............................................................1 Prior Agreements............................................................25
Prior Sellers...............................................................25 Publico......................................................................1 Real Property...............................................................26 Release.....................................................................21 Released Parties............................................................60 Representatives.............................................................41 Restructuring Transactions...................................................1 SARs.........................................................................1 Seller Claims...............................................................60 Seller Releasing Parties....................................................60 Sellers......................................................................1 Sellers' Representative.....................................................63 Subsidiary..................................................................13 Supplemental Disclosure.....................................................46 Surviving Company............................................................2 Target Working Capital.......................................................9 Tax.........................................................................19 Tax Return..................................................................19 Tax Returns.................................................................19 Taxes.......................................................................19 Termination Date............................................................53 Transfer Taxes..............................................................45 Working Capital.............................................................10
- vi AGREEMENT AND PLAN OF MERGER, dated as of November 7, 2006 (this "Agreement"), by and among KABLE MEDIA SERVICES, INC., a Delaware corporation --------("Parent"), GLEN GARRY ACQUISITION, INC., a Delaware corporation and a -----wholly-owned subsidiary of Parent ("Merger Sub"), PALM COAST DATA HOLDCO, INC., ---------a Delaware corporation ("Holdings"), and the Persons (as defined in Section -------3.1(a) hereof) set forth on the signature page hereto and designated as sellers (the "Sellers") and, with respect to Section 12.1 only, AMREP CORPORATION, an ------Oklahoma corporation ("Publico"). ------WITNESSETH WHEREAS, the Board of Directors of Parent and the Board of Directors of Merger Sub have each approved this Agreement and the merger of Merger Sub with and into Holdings, whereby each outstanding share of Class A Common Stock, par value $0.01 per share (the "Class A Common Stock"), and Class B Common Stock, --------------------par value $0.01 per share (the "Class B Common Stock"), of Holdings (the --------------------"Holdings Shares") will be converted into the right to receive the Per Share ---------------Amount (as defined in Section 2.1 hereof) in accordance with this Agreement,
upon the terms and subject to the (the "Merger"); ------
conditions and
limitations
set forth herein
WHEREAS, the Board of Directors and stockholders of Holdings have unanimously determined that the Merger is fair to, advisable and in the best interests of Holdings and its stockholders and have unanimously approved this Agreement, the Merger and the other transactions contemplated by this Agreement; WHEREAS, the members of the management of Palm Coast Data LLC, a Delaware limited liability company (the "Company") have each elected to settle for a cash ------payment, pursuant to Section 2.2(c) of this Agreement, all of the issued and outstanding stock appreciation rights that have been allocated to phantom equity ("SARs"), all amounts allocated to phantom debt under the Incentive Agreements ---set forth in Section 2.2(a) of the Disclosure Schedule (as defined herein) (the "Phantom Debt") and, pursuant to Section 2.2(b) of this Agreement, all of the -----------issued and outstanding options to acquire Class B Common Stock (the "Options") ------under Holdings' 2005 Stock Option Plan (the "Plan"); ---WHEREAS, in connection with the Restructuring Transactions described in Section 1.1 of the Disclosure Schedule (the "Restructuring Transactions"), --------------------------Holdings will issue shares of its Series A Redeemable Voting Preferred Stock, par value $0.01 per share (the "Preferred Shares"), which, as a result of the ----------------Merger, will be converted into the right to receive the Aggregate Liquidation Preference (as defined in Section 2.1 hereof) in accordance with this Agreement, upon the terms and subject to the conditions and limitations set forth herein. NOW, THEREFORE, in consideration of the representations, warranties, covenants, agreements and conditions hereafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I THE MERGER SECTION 1.1 The Merger. ---------(a) The Merger. Upon the terms and subject to the satisfaction or waiver, ---------if permissible, of the conditions hereof, at the Effective Time, Merger Sub shall be merged with and into Holdings, whereupon the separate corporate existence of Merger Sub shall cease, and Holdings shall survive and continue to exist (Holdings, as the surviving corporation in the Merger, is sometimes referred to herein as the "Surviving Company"). (b) Name. ---Holdco, Inc." The name of the Surviving Company shall be "Palm Coast Data
(c) Certificate of Incorporation and Bylaws. As of the Effective Time, the ---------------------------------------certificate of incorporation and bylaws of the Surviving Company shall be amended and restated in their entirety to read as the certificate of incorporation and bylaws, respectively, of Merger Sub as in effect immediately prior to the Merger, in each case until thereafter amended in accordance with applicable Law (as defined in Section 3.11 hereof), except as set forth in Section 1.1(b) hereof. Directors and Officers of the Surviving Company. The directors of -------------------------------------------------Merger Sub immediately before the Merger shall comprise all of the directors of the Surviving Company immediately after the Merger, each of whom shall serve until such time as their successors shall be duly elected. The officers of Merger Sub immediately before the Merger shall comprise all of the officers of the Surviving Company immediately after the Merger, each of whom shall serve until such time as their successors shall be duly elected. (e) Effect of the Merger. At the Effective Time, the effect of the Merger -------------------shall be as provided in Section 259 of the Delaware General Corporation Law (the "DGCL"). At the Effective Time, all Holdings Shares held by Parent shall be cancelled and extinguished and no additional consideration shall be payable therefor. SECTION 1.2 Closing Date and Effective Time. Subject to the satisfaction or ------------------------------waiver, if permissible, of the conditions set forth in Articles VII and VIII, other than those conditions that by their nature are to be satisfied at the consummation of the Merger, but subject to the fulfillment or waiver, if permissible, of those conditions, the parties shall cause a certificate of merger relating to the Merger (the "Certificate of Merger") to be filed with the --------------------Secretary of State of the State of Delaware pursuant to the DGCL on (i) the later of (x) January 16, 2007 and (y) a date selected by Parent after such satisfaction or waiver that is no later than five (5) business days after such satisfaction or waiver, or (ii) such other date to which the parties may mutually agree (the "Closing Date"). The Merger shall become effective upon such -----------filing of the Certificate of Merger (the "Effective Time"). -------------- 2 SECTION 1.3 Closing. ------(a) The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of DLA Piper US LLP, 1200 Nineteenth ------Street, NW, Washington, D.C. 20036 at 10:00 a.m., local time, or at such other place and time as the parties shall mutually agree, on the Closing Date. (b) At the Closing, following to Parent: Holdings shall deliver or cause to be delivered the (d)
(i) a certificate of an officer of Holdings in form and substance reasonably satisfactory to Parent, dated as of the Closing Date, to the effect that the conditions specified in Sections 7.1, 7.2 and 7.4 hereof have been fulfilled; (ii) the stockholder records and minute books of Holdings and the limited liability company member records and minute books of the Company; (iii) a certificate of an officer of Holdings in form and substance satisfactory to Parent, to be dated as of the Closing Date, attaching (A) a copy of the resolutions duly adopted by the Board of Directors of Holdings, authorizing and approving the execution, delivery and performance of this Agreement and the transactions contemplated hereby and any other documents or instruments contemplated hereby, and certifying that such resolutions have not been rescinded, revoked, amended or modified and remain in full force and effect as of the Closing, (B) a copy of the resolutions duly adopted by the stockholders of Holdings, approving and adopting this Agreement and the transactions contemplated hereby, and certifying that such resolutions have not been rescinded, revoked, amended or modified and remain in full force and effect as of the Closing, (C) a true, correct and complete copy of the certificate of incorporation and bylaws of Holdings, as amended to date, and certifying that such documents are in full force and effect as of the Closing, and (D) incumbency, authority and specimen signatures of each of the officers of Holdings executing this Agreement and any other document or instrument executed on behalf of Holdings in connection with the transactions contemplated hereby and certifying the authenticity of such signatures; (iv) a certificate from the Secretary of State of the State of Delaware as to (A) Holdings' incorporation, valid existence and good standing as a domestic corporation in the State of Delaware and (B) the Company's formation, valid existence and good standing as a domestic limited liability company in the State of Delaware, together with a certificate of good standing from the Secretary of State or other appropriate governmental official of each jurisdiction in which Holdings or the Company, as applicable, is qualified to conduct its business as a foreign entity, all dated no more than five days prior to the Closing Date; (v) the resignations of the members of the Board of Holdings and the Board of Managers of the Company; (vi) an executed counterpart Section 1.3(c)(vi) hereof); (vii) certificates representing defined in Section 3.2(b) hereof); all Company Common Interests (as to the Escrow Directors of
Agreement (as defined in
- 3 -
(viii) all appropriate payoff letters or other documentation sufficient to evidence satisfaction and payment of the outstanding balances under all Indebtedness (as defined in Section 3.25 hereof) of the Company and Holdings, which Holdings and the Sellers have represented is the Indebtedness listed in Section 1.3(b)(viii) of the Disclosure Schedule (other than any Indebtedness which is specified in Section 1.1 of the
Disclosure Schedule as not being repaid at the Closing), and any interest therein or thereon or other amounts payable with respect thereto (the "Debt ---Amount"), and all applicable Encumbrance (as defined in Section 3.3(a) -----hereof) releases, cancelled notes or other evidence of Indebtedness duly marked as cancelled; (ix) the third party consents and documents evidencing the termination of the agreements, in each case as specified in Section 1.3(b)(ix) of the Disclosure Schedule; (x) certificates from each of the Sellers substantially in the form set forth in Treasury Regulation Section 1.1445-2(b); (xi) an opinion from DLA Piper US LLP addressed to the Parent and dated as of the Closing Date in substantially the form attached hereto as Exhibit A; (xii) evidence of the payment of all bonuses accrued through the date of Closing under the Company's 2006 Incentive Compensation Plan; (xiii) evidence of the completion of the immediately prior to the Closing; and Restructuring Transactions
(xiv) all other documents required to be delivered by Holdings on or prior to the Closing Date pursuant to this Agreement, or otherwise required from Holdings in connection herewith to consummate the transactions contemplated herein. (c) At the Closing, Parent shall deliver: (i) to each holder of Holdings Shares, the Per Share Amount in cash multiplied by the aggregate number of Holdings Shares next to the name of such holder in Section 4.2 of the Disclosure Schedule by wire transfer of immediately available funds to the bank accounts designated by such Holders not less than three business days prior to the Closing; (ii) to each holder of Preferred Shares (the "Preferred Holder"),, an ---------------amount in cash equal to the Aggregate Liquidation Preference of such Preferred Shares by wire transfer of immediately available funds to the bank accounts designated by such Preferred Holder not less than three business days prior to the Closing; (iii) on behalf of Holdings or the Company, as applicable, the Debt Amount, by wire transfer of immediately available funds to the bank account(s) designated in the payoff letters described in Section 1.3(b)(viii), in the amounts and in the manner specified in such payoff letters; - 4 (iv) on behalf of Holdings, to each holder of SARs, the portion of the Aggregate SAR Amount allocable to such holder, as calculated pursuant to Section 2.2(c) hereof, less any amounts required to be withheld under
applicable Law, by wire transfer of immediately available funds to the bank accounts designated by such Holder prior to the Closing; (v) on behalf of Holdings, to each holder of Options, the portion of the Aggregate Option Amount allocable to such holder, as calculated pursuant to Section 2.2(b) hereof, less any amounts required to be withheld under applicable Law, by wire transfer of immediately available funds to the bank accounts designated by such Holder prior to the Closing; (vi) to an escrow agent (the "Escrow Agent"), mutually acceptable to -----------Parent and Holdings, as part of the Merger Consideration, an amount equal to $3,500,000 (the "Escrow Amount") pursuant to an escrow agreement, -------------substantially in the form attached hereto as Exhibit B (the "Escrow -----Agreement"), in order to secure the indemnification obligations of the --------Sellers pursuant to Section 10.2 hereof; (vii) to Holdings, a certificate of an officer of Parent in form and substance reasonably satisfactory to Holdings, dated as of the Closing Date, to the effect that the conditions specified in Sections 8.1 and 8.2 hereof have been fulfilled; (viii) to Holdings, a certificate of the Secretary or Assistant Secretary of Parent in form and substance satisfactory to Holdings, to be dated as of the Closing Date, attaching (A) a copy of the resolutions duly adopted by the Board of Directors of Parent, authorizing and approving the execution, delivery and performance of this Agreement and the transactions contemplated hereby and any other documents or instruments contemplated hereby, and certifying that such resolutions have not been rescinded, revoked, amended or modified and remain in full force and effect as of the Closing, (B) a true, correct and complete copy of each of the certificate of incorporation and bylaws of Parent, as amended to date, and certifying that such documents are in full force and effect as of the Closing, and (C) incumbency, authority and specimen signatures of each of the officers of Parent executing this Agreement and any other document or instrument executed on behalf of Parent in connection with the transactions contemplated hereby and certifying the authenticity of such signatures; (ix) to Holdings, an executed counterpart to the Escrow Agreement; and (x) all other documents required to be delivered by Parent on or prior to the Closing Date pursuant to this Agreement or otherwise required from Parent in connection herewith to consummate the transactions contemplated herein. (d) At the Closing, Merger Sub shall deliver to Holdings: - 5 (i) a certificate of an officer of Merger Sub in form and substance satisfactory to Holdings, to be dated as of the Closing Date, attaching (A) a copy of the resolutions duly adopted by the Board of Directors of Merger Sub, authorizing and approving the execution, delivery and performance of
this Agreement and the transactions contemplated hereby and any other documents or instruments contemplated hereby, and certifying that such resolutions have not been rescinded, revoked, amended or modified and remain in full force and effect as of the Closing, (B) a copy of the resolutions duly adopted by the Parent as the stockholder of Merger Sub, approving and adopting this Agreement and the transactions contemplated hereby, and certifying that such resolutions have not been rescinded, revoked, amended or modified and remain in full force and effect as of the Closing, (C) a true, correct and complete copy of the certificate of incorporation and bylaws of Merger Sub, as amended to date, and certifying that such documents are in full force and effect as of the Closing, and (D) incumbency, authority and specimen signatures of each of the officers of Merger Sub executing this Agreement and any other document or instrument executed on behalf of Merger Sub in connection with the transactions contemplated hereby and certifying the authenticity of such signatures; and (ii) to Holdings, all other documents required to be delivered by Merger Sub on or prior to the Closing Date pursuant to this Agreement or otherwise required from Merger Sub in connection herewith to consummate the transactions contemplated herein. (e) At the Closing, each Seller shall deliver to Parent: (i) a certificate of such Seller in form and substance reasonably satisfactory to Parent, dated as of the Closing Date, to the effect that the conditions specified in Sections 7.1, 7.2 and 7.4 hereof have been fulfilled; (ii) an executed counterpart to the Escrow Agreement; (iii) stock certificates representing all of the Holdings Shares and Preferred Shares owned by such Seller, if any; and (iv) evidence of the settlement of all of the SARs, Options and Phantom Debt held by such Seller, if any, in the manner specified in Section 2.3 of this Agreement. ARTICLE II MERGER CONSIDERATION SECTION 2.1 Conversion of Shares. -------------------(a) Subject to the provisions of this Agreement, each Holdings Share issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger, be cancelled and shall as of the Effective Time automatically be converted into and shall thereafter only represent (i) the right to receive - 6 cash, without any interest, in the amount of the Per Share Amount and (ii) the right to receive in cash such Holdings Shares' pro rata share, on a Fully Diluted Basis (as defined in Section 2.4(c) hereof), of any amounts to be distributed or paid to the Sellers pursuant to the Escrow Agreement and any
other amounts to be distributed or paid to the Sellers pursuant to the terms of this Agreement. For purposes of this Agreement, the "Per Share Amount" and the ---------------"Per Share Escrow Amount" shall be calculated as set forth in Section 2.1(a) of -----------------------the Disclosure Schedule. (b) Subject to the provisions of this Agreement, each Preferred Share issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger, be cancelled and shall as of the Effective Time automatically be converted into and shall thereafter only represent the right to receive cash, without any interest, in the amount of the liquidation preference for such Preferred Share as provided in Holdings' Amended and Restated Certificate of Incorporation establishing the terms of the Preferred Shares (the "Aggregate --------Liquidation Preference"). ---------------------(c) At the Effective Time, the transfer books of Holdings shall be closed as to holders of Holdings Shares and Preferred Shares immediately prior to the Effective Time and no transfer of Holdings Shares or Preferred Shares by any such holder shall thereafter be made or recognized. (d) At and after the Effective Time, each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of common stock of the Surviving Company and the common stock so converted shall constitute the only outstanding capital stock of the Surviving Company. SECTION 2.2 Stock Appreciation Rights; Options; Phantom Debt. -----------------------------------------------(a) Effective as of the date of this Agreement, each of the Amended and Restated Incentive Agreements (the "Incentive Agreements") between Holdings and the holders of phantom debt ("Phantom Debt") as set forth in Section 2.2(a) of ------------the Disclosure Schedule shall be further amended to provide that the holder may elect to receive payment of such Phantom Debt that is otherwise payable in the future under Section 4 of the Incentive Agreements as of the later of (i) the Effective Time or (ii) January 2, 2007 (the "Payment Date"). By executing this ------------Agreement, each such holder agrees to such amendment and elects under his or her Incentive Agreement, as amended by this Agreement, to receive payment of such Phantom Debt on the Payment Date. Thus, on the Payment Date, Parent shall settle, or cause to be settled, on behalf of Holdings and its Subsidiary, all amounts allocated to Phantom Debt under the Incentive Agreements, as amended by this Agreement, whether or not such Phantom Debt is then vested or exercisable (it being understood that any outstanding Phantom Debt shall vest in full upon the Closing), for a dollar amount applicable to such Phantom Debt as set forth in Section 2.2(a) of the Disclosure Schedule (the "Applicable Phantom Debt -----------------------Amount"). Each Phantom Debt holder who is entitled to receive his or her portion -----of the Applicable Phantom Debt Amount, all of whom are Sellers, shall accept such amount (less payroll tax withholdings) in full settlement and discharge of all rights of the Phantom Debt holder as to all of the Phantom Debt that he or she holds under the applicable Incentive Agreement, as amended by this Agreement. In addition, any unpaid interest on such Phantom Debt provided for in
Sections
4(a)(ii) and 4(a)(iii) of the Incentive - 7 -
Agreements,
as accrued after
the last full calendar quarter ending immediately before the Closing Date through the Closing Date, shall be paid to the applicable holder on the Closing Date. (b) At the Effective Time, Parent shall settle, or cause to be settled, on behalf of Holdings and its Subsidiary, each outstanding Option granted under the 2005 Stock Option Plan between Holdings and the holders of Options and listed in Section 2.2(b) of the Disclosure Schedule (together, the "Option Agreements"), -----------------whether or not such Options are then vested or exercisable (it being understood that any outstanding Options shall vest in full upon the Closing), for a dollar amount equal to the excess of the Per Share Amount over the Exercise Price as set forth in Section 2.2(b) of the Disclosure Schedule (such excess, if any, in respect of such Option, the "Applicable Option Amount"). Each Option holder who -----------------------is entitled to receive the Applicable Option Amount, all of whom are Sellers, shall accept such amount (less applicable payroll tax withholdings) in full settlement and discharge of all rights of the Option holder for each Option that he or she holds under the applicable Option Agreement. The aggregate amount paid at Closing pursuant to this Section 2.2(b) (including applicable withholding taxes) shall be referred to in this Agreement as the "Aggregate Option Amount." ----------------------(c) At the Effective Time, Parent shall settle, or cause to be settled, on behalf of Holdings and its Subsidiary, each outstanding SAR granted under the Incentive Agreements, whether or not such SARs are then vested or exercisable (it being understood that any outstanding SARs shall vest in full upon the Closing), for a dollar amount equal to the SAR Exercise Price in respect of the SAR (which for purposes of this Section 2.2(c) shall equal the Per Share Amount) (the "Applicable SAR Amount"). Such payment shall be made pursuant to Section ---------------------4(e) of the Incentive Agreements, and Parent agrees to amend such Section 4(e) by the end of 2007 (or by such later time as is permitted by the Internal Revenue Service) to provide that such payments may only be made in the event of a "change in control," as defined in the final regulations to be issued under Section 409A of the Code and to otherwise amend such Incentive Agreements to comply with Section 409A of the Code and the final regulations to be issued thereunder. Each SAR holder who is entitled to receive the Applicable SAR Amount, all of whom are Sellers, shall accept such amount (less applicable payroll tax withholdings) in full settlement and discharge of all rights of the SAR holder for each SAR that he or she holds under the applicable Incentive Agreement. The aggregate amount paid at the Effective Time (including applicable withholding taxes) shall be referred to in this Agreement as the "Aggregate SAR ------------Amount". -----(d) Notwithstanding anything to the contrary in Sections 2.2(b) and 2.2(c), each holder of SARs and each holder of Options shall be entitled to receive their pro rata share, on a Fully Diluted Basis, of any amounts to be distributed or paid to Sellers pursuant to the Escrow Agreement and any other amounts to be
distributed or paid to the Sellers pursuant to the terms of this Agreement (in each case, less applicable payroll tax withholdings). All amounts payable pursuant to Sections 2.2(b) and 2.2(c) shall be paid by wire transfer of immediately available funds to the bank accounts designated by the applicable Sellers prior to the Closing. (e) Notwithstanding anything to the contrary in Section 2.2(a) hereof, if the Closing occurs before January 2, 2007, Parent on the Closing Date, in lieu of making future payments of Phantom Debt under Section 4 of the Incentive - 8 Agreements or making payments of Phantom Debt under Section 2.2(a) hereof, shall instead deposit an amount equal to the aggregate amount of such payments into a separate subaccount in the escrow account established pursuant to the Escrow Agreement, to be paid on January 2, 2007, as contemplated by Section 2.2(a) hereof. Such subaccount shall be subject to the creditors of Parent. No interest shall be added to the funds in such subaccount other than interest earned by the escrow subaccount itself. (f) The amendment and election described in Section 2.2(a) hereof are intended to comply with the IRS's transition rules under Section 409A of the Code, as set forth in the preamble to Section 1.409A-1, et seq. of the Proposed Treasury Regulations and in Notice 2006-79, and, therefore, to result in a permissible amendment and election as to timing and form of the payment of deferred compensation under Section 409A to the extent such amounts would not otherwise be payable in 2006 and to the extent such amendment and election would not cause an amount to be paid in 2006 that would not otherwise be payable in 2006, under a good faith interpretation of the Incentive Agreements, Section 409A of the Code and applicable guidance thereunder. The required amendment to Section 4(e) of the Incentive Agreements that is described in Section 2.2(c) hereof is intended to allow payment under Section 4(e) of the Incentive Agreements in good-faith compliance with Section 409A of the Code and the applicable guidance thereunder. SECTION 2.3 Pre-Closing Adjustment. ---------------------(a) The "Target Working Capital" is $1,800,000. At least three (3) but not ---------------------more than five (5) business days prior to Closing, Holdings shall deliver to Parent a statement that sets forth Holdings' good faith estimate of the Working Capital of Holdings estimated through and including the Closing Date (the "Estimated Working Capital"). The Estimated Working Capital shall be determined ------------------------in accordance with generally accepted accounting principles ("GAAP"), except as ---set forth in Section 3.4 of the Disclosure Schedule, using the same methodology (in terms of selection of GAAP accounting policies and principles) as was used to prepare Holding's unaudited consolidated balance sheet as of June 30, 2006. If Parent disputes Holdings' calculation of the Estimated Working Capital, Parent shall notify Holdings of such dispute at least one (1) business day prior to Closing and in such event the Estimated Working Capital for purposes of this Section 2.3 shall be deemed to equal the Working Capital reflected on Holdings' unaudited consolidated balance sheet as of June 30, 2006. The Merger
Consideration
shall be increased by the positive amount by which the Estimated --------Working Capital exceeds Target Working Capital, or the Merger Consideration shall be decreased by the positive amount by which Target Working Capital exceeds the Estimated Working Capital. For the avoidance of doubt, the Estimated Working Capital shall exclude the Insurance Proceeds (as defined in Section 6.9 hereof). The "Merger Consideration" shall be $92,000